HQ 0544017 - GSP Eligibility of Photograph Albums Assembled in Mexico - United States International Trade Commision Rulings

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HQ 544017

May 15, 1989

CLA-2 CO:R:C:V 544017 BJO

CATEGORY: CLASSIFICATION

Gary C. Cooper, Esq.
George R. Tuttle, P.C.
Three Embarcadero Center
Suite 1160
San Francisco, California 94111

RE: GSP Eligibility of Photograph Albums Assembled in Mexico

Dear Mr. Cooper:

This is in response to your letter of September 10, 1987, on behalf of Sunnyville Corporation, in which you request a ruling under the Generalized System of Preferences ("GSP")(19 U.S.C. 2461-2466) that unfinished photo album filler pages produced in Mexico are substantially transformed constituent materials. We apologize for the delay in our response.

FACTS:

You state that Sunnyville Corporation intends to assemble the photo albums in Mexico for export to the U.S. The components used in the photo album assembly will be: (1) filler pages, which will be produced in Mexico from rolls of manilla paper imported from Korea or the U.S., O.P.P. film imported from Korea, and latex (glue) imported from the U.S. or Malaysia, (2) a book cover imported from Korea, Mexico, or Singapore, (3) metal rings imported from Hong Kong or Korea, (4) two PVC protectors, imported from Korea or produced in Mexico, (5) labels imported from Korea or the U.S., (6) rivets imported from the U.S., and (7) packaging imported from the U.S. or produced in Mexico.

The filler pages will be produced in Mexico from the imported rolls of manilla paper, O.P.P. film, and latex (glue) as follows:

1. The latex will be mixed, the manilla paper and O.P.P. film inspected for defects, and the sheet making machine prepared for operation. The sheet making machine is 70 feet long, and contains a series of rollers, an oven, and a rotary cutter through which the manilla paper will pass. The machine's sensors and tension gages will be pre-set, the oven temprature set, and the circular cutter checked for proper positioning.

2. The manilla paper and O.P.P. film will then be mounted to the machine. While the paper and O.P.P. film are being fed through the machine, its speed will be increased to adjust tension and the sensors.

3. The machine's rollers will coat the front of the paper with latex necessary to hold the O.P.P. film. The paper will pass through an oven to dry the latex, and then through a series of rollers which place glue on the back of the paper, laminate the film to the front of the paper, and fold the paper in half and glue it together. The sheet then will be passed through a roller which presses the sheet to remove the air between the paper and film, and then through a rotary cutter, which cuts the paper to sheets measuring 22 1/2 x 9 3/8 inches. At this point, the sheets are "unfinished filler sheet" which remain to be cut to proper size and punched with holes for insertion into the binder.

The unfinished filler sheet will be loaded into bundles, inspected for defects, pallatized, and stored for approximately one week, apparently to allow the sheets to dry. At that time, the unfinished filler sheet will be cut in half, trimmed on two sides, and punched with a drill machine to form three holes on one side of the sheet. The photo album will then be assembled by riveting the three ring metal section to the center of the binder cover, hand placing the finished filler pages and two plastic protectors in the rings, and attaching a label to the album cover. The album will then be packaged by a shrink-wrap sealing machine, and packed in cartons for shipment.

You estimate that the total cost of producing one dozen photo albums will be $32.49, of which 58 percent will be attributed to the total cost of materials used in producing the filler pages. You state that the sheet-making machine costs approximately $50,000, and that 30 persons are required to produce the filler pages, assemble the photo album, and pack and ship the finished product. You also estimate that the direct labor costs plus the indirect costs of producing a dozen units, including lease, maintenance, travel, utilities, depreciation, and sample costs will be $1.651, or approximately 5.08 percent of the total cost of production. Your submission indicates that unless the unfinished filler pages are considered substantially transformed constituent materials of the photograph albums, the albums will not qualify for duty-free treatment under the GSP.

ISSUE:

Whether unfinished filler paper produced in Mexico from imported materials in the above-described process are substantially transformed constituent materials for GSP purposes.

LAW AND ANALYSIS:

Under the GSP, eligible products of a designated beneficiary developing country (BDC) which are imported directly into the U.S. qualify for duty-free treatment if the sum of the cost or value of the constituent materials produced in the BDC plus the direct costs involved in processing the eligible article in the BDC is at least 35 percent of the article's appraised value at the time of its entry into the U.S. See 19 U.S.C. 2463.

The cost or value of materials which are imported into the BDC to be used in the production of the article, as here, may be included in the 35 percent value-content computation only if the imported materials undergo a double substantial transformation in the BDC. That is, the materials imported into Mexico must be substantially transformed in Mexico into a new and different intermediate article of commerce, which is then used in Mexico in the production of the final imported article, the photo albums. See 19 CFR 10.177(a).

You claim that the processing of the O.P.P. film, latex, and rolls of manilla paper in Mexico substantially transforms those materials into an intermediate article of commerce, the unfinished filler pages, and that the cutting and hole-punching of those unfinished filler pages and assembly of the photo album binder constitutes the requisite double substantial transformation. You therefore claim that the unfinished filler pages are substantially transformed constituent materials for purposes of the GSP, and that their cost may be counted toward the 35 percent value-content requirement.

A substantial transformation occurs when an article emerges from a process with a new name, character, or use different from that possessed by the article prior to processing. See Texas Instruments, Inc. v. United States, 69 CCPA 152, 681 F.2d 778 (1982). If the manufacturing or combining process is merely a minor one which leave the identity of the imported article intact, a substantial transformation has not occurred. Uniroyal, Inc., v. United States, 542 F. Supp. 1026, 1029 (CIT 1982), aff'd per curiam, 702 F.2d 1022 (Fed. Cir. 1983).

The O.P.P. film, latex, and rolls of manilla paper are substantially transformed in Mexico to form a new and different article, the unfinished filler pages. The unfinished filler pages have a different name and tariff classification than the constituent materials. The character of the materials has been changed in the processing: the rolls of manilla paper are cut, folded in half, and glued together; the O.P.P. film is attached to the manilla paper and cut; and the latex is mixed, applied to the sheets, and dried. The materials have also undergone a change in use, from raw materials with multiple potential uses to an unfinished photo album page, an article with a limited, specific use. Upon manufacture into the unfinshed filler pages, the commercial and physical identity of the constituent materials is lost. The processing of the materials to form the unfinished filler pages appears to require a number of steps, a substantial period of time, and a significant capital investment in the sheet making machine.

However, the further processing of the unfinished photo album filler pages does not constitute a second substantial transformation. The cutting and hole punching of the filler pages and hand-placing them into the album appear to be minor finishing operations which do not substantially transform the unfinished filler pages into a new and different article of commerce. The descriptions of the two articles, "unfinished filler pages" and (finished) filler pages, simply refer to the same product at different stages of production. See National Juice Products Association v. United States, 628 F.Supp. 978, 989 (CIT 1986). Cutting in half, trimming, and 3 hole punching does not physically alter the unfinished filler pages to a significant extent, and does not cause the unfinished filler pages to lose its identifying characteristics. Both before and after the operations, the pages appear to be intended and suitable for use only as photograph album pages.

In determining whether the unfinished filler pages have undergone the requisite second substantial transformation, we do not consider relevant the assembly of the album cover. The physical identity, name, and use of the filler pages does not appear to be affected at all by that assembly, and, as set forth above, simply hand-placing the filler pages into the album does not convert them into new and different article of commerce. Accordingly, the filler pages cannot be said to have been substantially transformed as a result of the assembly of the album cover.

CONCLUSION:

Unfinished filler pages are not substantially transformed constituent materials of imported photograph albums, and their cost or value may not therefore be counted toward the GSP 35% value-content requirement.

Sincerely,

John Durant, Director

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